The Federal Reserve Bank of Atlanta published an interesting working paper that analyzes data regarding person-to-person (P2P) payments. The analysis is based upon data from the 2015 to 2019 Survey of Consumer Payment Choice (SCPC) and Diary of Consumer Payment Choice (DCPC), which is to say pre-pandemic.
While the industry has been commenting on the enormous growth that P2P apps have recorded in the last few years, this report reminds us that those volumes are still a rather small portion of the overall P2P money exchange that includes a lot of cash and check, underscoring the on-going need to support these payment types and also the growth opportunity still available for digital solutions. Here are a few interesting snippets from the report:
- Despite the availability of electronic options for p2p payments over the past two decades,
paper payment methods continue to dominate for p2p payments. From 2015 to 2019, the vast majority of U.S. consumers used paper methods when conducting p2p transactions. Approximately two-thirds of p2p transactions were settled with cash in 2019.
- Our empirical analysis uses mixed multinomial logit and machine learning methods to analyze
trends in the p2p market. The mixed logit find that among the three payment methods listed (cash, check, and electronic technologies), the most significant factor is the value of the transaction. We find that a $40 increase in the transaction value from $10 to $50 would, on average, result in a 20 percentage point decrease in the probability of using cash.
- … we find that approximately 93 percent of consumers rank electronic technologies second. Our results are consistent with consumers preferring cash for low-value p2p transactions and substituting towards electronic technologies for high-value transactions. Given the large percentage of consumers who rank electronic technologies second, our results are suggestive that p2p electronic technologies could be at their inflection point.
At the risk of sounding like a complete payments wonk, it would be fascinating to see a similar analysis with updated data from 2020.
Overview by Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group